How The Next President Can Use Executive Power To Jumpstart Economic Growth On Day One (Part 2)

The Federal Register contained over 7,700 rules and regulations among an all-time-record 73,000 pages the year President Reagan was elected. One response was his Executive Order 12291 calling for enhanced cost-benefit analysis, and central review of agency’s regulations by the White House Office of Management and Budget (OMB).

As the prior essay noted, he brought pages down by as much as 38 percent, and rules down by as much as 40 percent, during his term.

We’re back to record levels. The Federal Register finished 2015 at 80,260 pages; As of today the 2016 edition contains 56,760 pages, 1,110 issued Friday alone.

A new study by James Bessen of Boston University finds increasing shares of recent corporate profits coming from political favor-seeking. Our teed-up regulatory state stands ready to worsen matters.

Regulatory oversight isn’t what it was in part because the Reagan oversight order was jettisoned; this two part series recommends reinstating its equivalent.

Much more than that needs doing, but this is about starting the engine, whomever becomes the next president.

Here’s what happened to the Reagan sledgehammer order. Following regulatory legislation under the first George Bush’s term, President Bill Clinton replaced Reagan’s E.O. 12291 with E.O. 12866 “Regulatory Planning and Review” in September 1993. The newer order retained the central regulatory review structure of Reagan but with significant changes that have allowed the regulatory enterprise to expand over time:

• E.O. 12866 “reaffirm[ed] the primacy of Federal agencies in the regulatory decision-making process,” weakening OMB’s power and the “central” in central review.
• Reagan’s 12291 required submitting all rules to OMB; Clinton’s E.O. 12866 changed that to just “significant” rules (nonetheless, this particular class of rules is rising too).
• The Reagan criterion that benefits “outweigh” costs was changed to a weaker stipulation that benefits “justify” costs.

The Clinton order remains largely in effect today (President Obama added four regulatory orders of his own that largely affirm it). Clinton retained requirements for agencies to assess costs and benefits of “significant” proposed and final actions, and to assess “reasonably feasible alternatives,” and attempt to “maximize net benefits.” Independent agencies remained exempt, but we see their outsize influence today, such as the Federal Communications Commission’s net neutrality industry realignment and the autonomous bodies implementing and enforcing the Dodd-Frank law via regulation and “guidance.”

The number of rules remained above 4,000 throughout the nineties (reaching 4,937 in 1996). While they have since settled around the 3,500 mark annually, the costly “economically significant” subset has risen, and Obama’s historic Federal Register accounts for six of the seven highest page counts ever.

So much for Reagan, then? As Sen. Ted Cruz warned about Obama’s “pen and phone,”, what had been “put in place by executive order” seemingly was indeed “undone by executive order” and subsequent costly legislation.

Economic liberalization by executive order is no permanent moderating force and amounts to regulatory oversight ping-pong between presidents. Still, a new president can restore and extend the Reagan criteria, while seeking legislative reforms to cement progress. If the past is a guide, we should see an effect on regulatory output especially if we track and prominently publish statistics.

Today, OMB central review captures just a fraction of rulemaking but could easily encompass and measure more. During fiscal year 2014, when 3,554 rules were finalized by over 60 federal departments, agencies and commissions, OMB’s most recent Report to Congress on the Benefits and Costs of Federal Regulations reviewed a few hundred significant rules, and 54 major rules—but presented reviewed net-benefit analysis for only 13. Overall, the OMB has reviewed just 160 rules since 2001 that incorporated both cost and benefit analysis, and another 86 with cost-only analysis.

Reaffirming the equivalent of the original Reagan order could at least improve these ratios.

Furthermore, rule counts do not include executive actions, agency guidance documents, bulletins, memoranda and other regulatory “dark matter.” These have assumed greater prominence as the federal government dominates more economic activity like energy, finance, medicine, Internet and cybersecurity, but for the most part are not subject to OMB review.

Such expansions should also be required by executive order, with an eye toward scrutiny and reform by Congress. The precedent here is that Reagan’s E.O. 12291 allowed the Director of OMB “to order a rule to be treated as a major rule” even when agencies had not, activating requirements for a so-called Regulatory Impact Analysis.

A president can get even more aggressive: For example during the 2012 campaign, Republican presidential nominee Mitt Romney released a position paper declaring his intention to:

"[R]equire all “major” rules (i.e., those with an economic impact greater than $100 million) to be approved by both houses of Congress before taking effect. If Congress declines to enact such a law, a President Romney will issue an executive order instructing all agencies that they must invite Congress to vote up or down on their major regulations and forbidding them from putting those regulations into effect without congressional approval [emphasis added]. (Believe in America: Mitt Romney’s Plan for Jobs and Economic Growth, 2011. p. 63.)

The apparent stance there was that, while the president must obviously carry out the duly-enacted laws of Congress, it is less clear that the executive must necessarily carry out decrees from 400-plus unelected agencies, especially when they never conduct regulatory housecleaning nor follow even the inadequate and sub-constitutional protections of the Administrative Procedure Act.

There have been over 20 years of legislative proposals to require Congress to affirm major agency rules to restore the balance of power, which didn’t succeed even when both Houses and the presidency were Republican. (The latest incarnation is the Regulations from the Executive In Need of Scrutiny Act, or “REINS). Nor has there been extensive use of “resolutions of disapproval” to reject rules under the Congressional Review Act. It is probable that, behind the scenes, REINS overly threatens political gains and myriad status quos secured via prior lobbying battles.

Such resistance must be overcome, since we are beyond the point that “good government” administrative reforms like Reagan’s order can fundamentally address bureaucratic lawmaking. Still, the presidential “pen and phone” might be used to advance liberty rather than curtail it.

When someone cares and pays attention, the history indicates that administrative reforms can have some real if temporary effect on regulatory volume. Regulators can be regulated.

A new administration that prepares between election time and assuming office will enjoy only a short window to act once the 115th Congress gets under way, while negotiating with the legislature on the more vital institutional liberalizations of eliminating bureaucracies and outmoded statutes, and restoring lawmaking/regulating power to Congress.

(This writeup is based on my recent report, “Channeling Reagan by Executive Order.” Part 1 with charts is here.)

Originally posted to Forbes.